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Global uncertainty and its impact on Indian stock market – ET Auto

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Our world is more complex and interconnected than ever before, and while this will perhaps be considered a positive experience for society, there are certain challenges that are plaguing us, especially when it comes to the economy.

The modern global economy is a complex structure made up of businesses that no longer work in silos. Most companies today have operations across multiple geographies that cater to customers across time zones and continents.

This interconnectedness ensures that an occurrence in one part of the world affects stakeholders across the globe. One of the areas where this impact is more pronounced is the global stock market, which continues to be affected by a variety of factors.

After two years of a global pandemic, and countless other geopolitical occurrences, the Indian stock market has continued to stay resilient in the face of global macro-economic instability.

However, even the strongest of stock markets cannot remain unscathed forever, and below is a list of reasons why the Indian markets have been rattled for the past six months.

1. Covid-19:

Termed by experts as the “greater financial crisis” and a “black swan event” i.e., the occurrence of a highly unanticipated event that had a major impact on financial markets across the globe, the Covid-19 pandemic shook the Indian markets like no other.

On March 23, 2020, after the national lockdown was announced, the BSE registered a drop in Sensex to 13.2% – its highest single-day fall since 1991.

Ever since, the BSE Sensex and NSE Nifty continue to get spooked by pandemic-related factors such as fear of new variants, and potential fresh waves of infections, among others.

2. Russia-Ukraine Conflict:

We are over 100 days into this global conflict that has led to billions in investor wealth being eroded from the market. Just like other geopolitical events such as the India-China standoff in 2018 and the Afghanistan crisis of last year, the Russia-Ukraine conflict has also impacted the Indian stock market in equal measure, maybe even more.

Whether it is the rise in crude oil prices and fuel or the price of wheat, the conflict has affected the very basics of everyday life. And as for the stock market, uncertainty around when the conflict will end, or what will be the result has created an overall sluggish sentiment and things are not likely to look up anytime soon.

3. US Federal Reserve Rate Hike:

In a move to tackle the worst inflation in the last four decades, the US Federal Reserve raised its interest rate in March. The rate hike was aimed at increasing borrowing costs to slow down the growth momentum and control soaring inflation.

The impact of this move was felt on the Indian stock market, as leading foreign investors withdrew money from the domestic market, and moved to the US, thereby impacting equity markets, rupee rates and inflation in India.

4. Oil Prices:
More than 85% of India’s domestic oil requirements are met through imports. The ongoing Russia-Ukraine conflict has yet again brought prices of crude oil to the fore.

The steep rise in international oil prices has impacted trade deficit & inflation and has even dented corporate profitability. From tyre manufacturing to lubricants and footwear to paint and airlines, almost every industry is dependent on crude oil prices.

Fluctuating crude oil prices have directly impacted the input costs of all these products that have eventually impacted the stock prices of companies across sectors.

Conclusion:

Thus, it is evidently clear that the volatility being showcased across global economies has had a significant bearing on the Indian stock market.

As circumstances stand today, markets across the world are facing inflation at decadal highs and persistent demand-supply imbalances. The war has led to the globalisation of inflation.

Not surprisingly, central banks are reorienting and recalibrating their monetary policies. In fact, emerging market economies (EMEs) are facing bigger challenges from increased stock market turbulence, monetary policy shifts in advanced economies (AEs) and their spillovers. In the process, the journey toward economic recovery in EMEs is also getting affected.

Notwithstanding these difficult and challenging times, the Indian economy has remained resilient, supported by strong macroeconomic fundamentals and buffers. The recovery has gained momentum despite the pandemic and the war.

Given the elevated uncertainties of the current period, India has largely remained dynamic and pragmatic rather than being bound by stereotypes and conventions.

Overall, the global developments and the build-up in inflation and continued pressures from several fronts have altered the macroeconomic dynamics and impacted stock markets, thereby warranting a continued monetary policy response on inflation, while growth recovery firms up.

Given that the situation is so dynamic and fast-changing, the best estimates and projections remain subject to change and are clearly at the behest of global developments.

(The author is CEO, Mirae Asset Capital Markets (India) Pvt. Ltd)

Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times.




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